Pantoja vs. Collins

California Civil Code section 3412 provides the statutory basis for cancellation actions, stating that “a written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.”

To prevail on a claim to cancel an instrument, a plaintiff must prove two elements: “(1) the instrument is void or voidable due to, for example, fraud; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position.” Weeden v. Hoffman (2016) 70 Cal.App.5th 269.

As a general rule, “a party to the contract or a privy thereto, and he alone, is entitled to maintain a suit to cancel or rescind it, and one who is a stranger to, or has no interest in, the subject matter of the suit is not ordinarily entitled to such relief.” Reina v. Erassarret (1949) 90 Cal.App.2d 418. This principle reflects the fundamental requirement that plaintiffs must have standing to challenge an instrument. The California Supreme Court has recognized that where sufficient grounds exist for rescission and cancellation of a conveyance, “it may be set aside at the suit of those succeeding to the rights of the grantor.” Reina, supra.

However, cancellation of an instrument is not necessarily confined to a party to the instrument if his legal or equitable rights are affected thereby. Reina, supra.

This exception allows certain non-parties to maintain cancellation actions when they can demonstrate that their own interests are impacted by the instrument. For example, heirs may sue to set aside a deed made by an ancestor during his lifetime, and creditors and trustees have been recognized as having standing to seek cancellation in appropriate circumstances. Reina, supra. But that is not the case here.

When seeking to cancel an instrument, plaintiffs must join all indispensable parties whose interests would be affected by the cancellation. “A person is an indispensable party if his or her rights must necessarily be affected by the judgment.” Majd v. Bank of America, N.A. (2015) 243 Cal.App.4th 1293. That’s not the case here. There are no facts alleged in the pleading indicating that RTI Properties, Inc. has any interest in the instruments sought to be cancelled. As such, the demurrer is sustained as to these causes of action.

Fourteenth Cause of Action for Declaratory Relief

RTI is correct that this cause of action fails for the same reasons discussed above: RTI is not a party to any of the agreements Plaintiff seeks to void through its declaratory relief cause of action including the Loan Agreement, Promissory Note, Deed of Trust, Intercreditor and Subordination Agreement, and Environmental Indemnity Agreement.

Sixteenth Cause of Action for Negligence

A negligence claim against a loan company would be characterized as derivative if the loan company’s alleged negligence caused harm to the LLC’s assets or business operations. For example, if a loan company negligently managed the LLC’s loan, causing financial losses to the LLC itself, this would constitute injury to the corporate entity requiring a derivative action. Nelson v. Anderson (1999) 72 Cal.App.4th 1111. The fact that members’ ownership interests decreased in value as a result would be merely “incidental to the injury to the corporation.” Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621.

Conversely, a member could assert a direct claim only if the loan company’s negligence caused a distinct injury to the member personally, separate from any harm to the LLC. However, California courts have consistently held that claims alleging mismanagement or negligence that reduces corporate assets must be brought derivatively. Heshejin v. Rostami (2020) 54 Cal.App.5th 984.

Either way, the claim attempts to assert both individual claims and derivative claims. That is not permitted. Capo’s negligence claim against a loan company must be characterized as either derivative or direct based on who suffered the harm, and these categories are mutually exclusive under California law, precluding a claim from being both simultaneously.

Plaintiff’s objections to RTI’s Memorandum of Points and Authorities in support if its demurrer are overruled.

Plaintiff’s objections to the declaration of Steven F. Kuehl are overruled.

Plaintiff is granted 30 days leave to amend.

The Case Management Conference is continued to December 10, 2026, at 9:30 a.m. in Department C12.

Moving Party to give notice of this ruling.

7. Cung vs. Cung

20-01126838

1. Motion for Equitable Credit 2. Motion for Attorney Fees 3. Notice of Joinder 4. Motion for Final Approval

Motion for Equitable Credit

Plaintiff Khanh Cung’s Motion for Equitable Credit is DENIED. Plaintiff seeks to apportion the $99,100 in misappropriated rents against Defendant Khiem’s share of the proceeds, characterizing this as a cost of the partition that can be equitably apportioned under Code Civ. Proc. §847.040. The Court has already found this to be an item of damages which was previously excised from the interlocutory judgment in the Court’s ruling on Defendant Khiem’s motion to vacate judgment. (See ROA 648 [8/29/25 Minute Order] at p. 3.) The court finds that this alleged misappropriation of rents is not a cost of partition and will not consider this item in apportioning the costs of the partition.

Motion for Attorney Fees

The Court previously GRANTED Plaintiff Khan Cung’s Motion for Attorney Fees in part. (See ROA 723 [2/27/26 Minute Order].) The Motion was GRANTED with respect to the request for $169,332.62 in fees incurred by Plaintiff, but the hearing was continued for the issue of apportionment of those fees, which is to be addressed with the Receiver’s Motion for Final Accounting. Plaintiff was also given leave to file a supplemental declaration to identify any fees that have accrued since 10/15/25. Plaintiff has submitted the declaration of Shelly J. Shafron, which indicates a further $16,080.50 has been incurred since 10/15/25. The Court has assessed Mr. Shafron’s declaration and finds that these fees were reasonable, and GRANTS the motion with respect to these additional fees, for a total award of $185,413.12.

Plaintiff’s Notice of Joinder in the Motion for Final Approval

Plaintiff’s Notice of Joinder in the Referee’s Motion for Final Approval and Instructions is received. To the extent that Plaintiff seeks any departure from the recommendations of the referee in this